Business groups are urging the Bank of England to slash interest rates to their lowest level since the Second World War this week.

The Observer-New Star interest rate predictor is pointing to a 0.5 percentage point cut, to 2.5 per cent, following last month's 1.5 per cent reduction. But David Kern, economic adviser to the British Chambers of Commerce, called for the Bank to reduce borrowing costs to just 2 per cent: their lowest level since 1939.

'To alleviate the worst consequences of the recession, we urge the MPC to cut rates by a full one per cent on Thursday, to two per cent. Additional cuts will be needed in the early months of the New Year,' he said.

With oil now worth barely a third of the $147 a barrel it hit in the summer, and demand on the high street falling away, the Bank's anxieties about above-target inflation have been appeased, and Mervyn King and his colleagues are locked in a battle against the deepening downturn.

Minutes from the last meeting of the Bank's monetary policy committee revealed that an even larger rate cut, of 2 percentage points or more, was discussed. Howard Archer, UK economist at consultancy Global Insight, said: 'The minutes left the door open for a big cut, and since then the economy's deteriorated further, and inflation fell back faster than expected in October.'

Kern said the Bank should also consider other measures, taking their lead from the US Federal Reserve, which plans to spend up to $800bn buying up securities from mortgage lenders Freddie Mac and Fannie Mae, and underwriting consumer credit.